Question

# Nachman Industries just paid a dividend of D0 = \$3.75. Analysts expect the company's dividend to...

Nachman Industries just paid a dividend of D0 = \$3.75. Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The required return on this low-risk stock is 9.00%. What is the best estimate of the stock's current market value?

 Required rate= 9.00% Year Previous year dividend Dividend growth rate Dividend current year Horizon value Total Value Discount factor Discounted value 1 3.75 30.00% 4.875 4.875 1.09 4.4725 2 4.875 10.00% 5.3625 140.766 146.1285 1.1881 122.99343 Long term growth rate (given)= 5.00% Value of Stock = Sum of discounted value = 127.47
 Where Current dividend =Previous year dividend*(1+growth rate)^corresponding year Total value = Dividend + horizon value (only for last year) Horizon value = Dividend Current year 2 *(1+long term growth rate)/( Required rate-long term growth rate) Discount factor=(1+ Required rate)^corresponding period Discounted value=total value/discount factor